Cost savings, bricks-and-mortar expansion and a barrier with competitors. These are some of the reasons experts say the partnership between Kohl’s Corp. and Amazon.com Inc. works for the e-commerce giant.
On Tuesday, Kohl’s KSS, -2.12% announced that it was expanding its partnership with Amazon AMZN, -0.81% and will now accept returns at all 1,150 store locations. Kohl’s also carries Amazon products at more than 200 stores.
The news sent Kohl’s shares soaring, with the stock closing up 12% on Tuesday.
Shoppers don’t like returning items in the mail, so services provided by companies like Narvar and Happy Returns have become more popular.
See: Walgreen’s adds e-commerce package pickup and return service to thousands of stores
For Kohl’s, the benefits to joining with Amazon are clear. This deal drives foot traffic through Kohl’s doors. And if those shoppers, now with a little more cash in their wallets, see something they like after they drop off their package, Kohl’s gets to ring up the sale.
But Amazon gets something out of this also.
“Amazon looks to be enticing customers to bring returns to a limited number of known Kohl’s addresses, instead of picking up returns at an endless number of home or office addresses,” said Pete Madden, a director in the AlixPartners LLP retail practice. “This likely saves Amazon money because customers are absorbing Amazon’s transportation cost by doing the driving and Kohl’s would be acting as Amazon’s consolidator.”
For example, Kohl’s is screening the items and putting them into a single shipment. Kohl’s is likely being compensated, Madden said, but at a rate that makes it a win-win for both companies.
Amazon is already spending billions to get items to customers. Amazon’s shipping costs in 2018 were $27.7 billion, according to the company’s 10-K, up from $21.7 billion the year before.
“We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fulfillment network, negotiating better terms with our suppliers, and achieving better efficiencies,” the 10-K reads. “We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers.”
Read: All 45 Amazon analysts are bullish on the stock - should that worry investors
Madden also thinks the partnership provides a way for Kohl’s and Amazon to keep customers from spending their money with the competition.
“Amazon is likely hoping to figure out new ways to keep their common customers with Kohl’s away from mutual rivals such as Walmart WMT, +0.66% , Target TGT, +1.10% and Macy’s M, +2.23% ,” he said. “Keeping a customer locked in with you is priceless.”
Retail trends are moving toward an omnichannel experience; customers are going online to shop, to research, or take other steps, but they’re still heading to stores, to pick up an item, return it, or see it in person.
Amazon has hundreds of Whole Foods Market locations, but its other bricks-and-mortar locations are limited.
“You now don’t have to worry about finding the right box for that oversize mattress you bought on Amazon,” said Oweise Khazi, senior principal at Gartner. “You can just drop it off at a Kohl’s store and buy an Amazon Echo while you’re at it. Amazon is essentially easing the return process while retaining consumers in a physical ‘Amazon ecosystem’ where they might make additional purchases while returning a product.”
For Amazon, easing the return process improves customer service, something that Amazon customers prize via the quick shipping options, said Alice Fournier, e-commerce analyst at Kantar. There are also other benefits.
“First, the possibility to lower the potential lost revenue from shoppers hesitant to buy based on the inconvenience of returns, but also a strategic gain in understanding better how shoppers navigate between in-store and online,” she said.
About 85% of shopping is still done in stores, so it makes sense that even an e-commerce giant like Amazon would explore the options in bricks-and-mortar. But Fournier doesn’t think an acquisition is in the offing right now.
Don’t miss: Amazon’s Whole Foods price cuts aim to build a ‘Costco-like’ relationship with Prime members
“The retailer still needs to steady its go-to-market approach as it relates to physical stores, and to acquire a chain like Kohl’s at this point would likely prove to be more of a burden than an opportunity,” she said.
“Once it has, through partnerships or its current physical presence, a better grasp of the store economics and a more defined strategy for its own successful bricks-and-mortar execution, then an acquisition may be likelier.”
Kohl’s stock has retreated 2.2% in Wednesday trading, but is up 11.3% for the year to date. Amazon, which is scheduled to report quarterly earnings on Thursday , is up 27% for 2019 so far. And the S&P 500 index SPX, -0.03% has rallied 17% for the period.
